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European Commission Consults on EU Implementation of the Net Stable Funding Ratio

On May 26, 2016, the European Commission published a consultation paper on the implementation of the Net Stable Funding Ratio at European Union level. The NSFR measures the assumed degree of stability of liabilities and the liquidity of assets over a one-year horizon. The Capital Requirements Regulation introduced reporting requirements for the NSFR without setting any more detailed requirements. The EBA published a report in December 2015 on whether, and how, it would be appropriate to ensure that institutions use stable sources of funding, supporting the Basel Committee NSFR at a European level but with some specificities regarding its calibration. To supplement the Commission’s analysis of the EBA’s report and Call for Evidence published in September 2015, the Commission is calling for a more nuanced treatment of specific business models and some transactions. The consultation seeks views on the treatment of specific aspects of the NSFR, derivative and short-term transactions (less than six months) with financial institutions and the application of the proportionality principle, in particular, the appropriate level of NSFR application and the criteria for defining institutions with a “low liquidity risk profile.”